Penn National Analysts Divided on Fate of Hot Gaming Stock

Posted on: January 14, 2021, 12:25h. 

Last updated on: January 14, 2021, 01:03h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.

Broadly speaking, Wall Street analysts are bullish on Penn National Gaming (NASDAQ:PENN). But that view isn’t universal, with plenty of sell-side debate on the name emerging today.

Penn stock
A slots player at Penn National Racecourse in Pennsylvania. Some analysts are divided on the stock. (Image: Getty Images)

At least three analysts chimed in on the regional gaming stock on Thursday. Views ranged from clearly enthusiastic to overtly bearish to something in-between.

Getting the bad news out of the way first, at least as far as Penn investors are concerned, Loop Capital analyst Daniel Adam downgraded the stock to a “sell” rating and a $60 price forecast. That’s far below the $104-ish handle at which the shares currently reside.

Penn stock is up more than 286 percent over the past year, as investors are wagering on the company’s ability to capture a large slice of the growing online sports betting market. However, Adam calls that rally “unwarranted,” and notes that the operator’s Barstool Sportsbook app is only live in Pennsylvania (it’s soon launching in Michigan), where it’s losing market share.

The stock has meaningfully outperformed over the past year (up ~300% vs. +16% for the S&P 500 Index), which we attribute to investors’ ‘hope’ that PENN can successfully capitalize on the growing online gaming opportunity in the US,” said the analyst.

He adds there are too many red flags surrounding Penn at the moment to warrant a “hold” rating. His $60 projection is well below the Wall Street consensus of $80.

That doesn’t mean he’s bearish on sports wagering stocks. Quite the opposite. Adam has a $100 price target on Penn rival DraftKings (NASDAQ:DKNG) and Loop Capital recently said DraftKings is one of its top ideas for 2021.

Bullish View

As noted above, Penn enjoys plenty of sell-side support. Count Truist analyst Barry Jonas among that group. He reiterated a “buy” rating on the stock while bumping his price estimate to $120 from $85. That implies upside of more than 15 percent from current levels.

“PENN shares are not cheap, but we continue to see momentum around the Barstool (both for sports betting and the growing value of its media brand),” said Jonas.

The Truist analyst offered up some other commentary for shareholders in this gaming equity. He notes that while numbers for the fourth quarter will likely be soft because of the coronavirus pandemic, management commentary on vaccine distribution could signal strong demand over the coming quarters.

“A tidal wave of pent-up demand for in-person social engagement and experiences” could benefit Penn’s regional casino operations later this year, according to Jonas.

That’s relevant to investors, because so much of the enthusiasm ascribed to Penn stock is attributable to online casinos and sports wagering, with land-based operations almost going overlooked.

In the Middle

Obviously, Jonas and Loop Capital’s Adam are at opposite ends of the spectrum regarding their views on Penn stock.

In the middle is KeyBanc analyst Brett Andress. Initiating coverage of a slew of gaming equities today, Andress tagged Penn with a “sector weight” rating, implying the name will perform in line with its peers.

He’s bullish on the company’s iGaming and sports betting setup via Barstool Sports but says market participants are assigning “somewhat lofty assumptions” to those businesses.

For all the analyst chatter on it today, Penn stock is just slightly lower in late trading.